A slew of products designed to build a consumer’s credit history are on the market these days; however, San Francisco-based fintech startup TomoCredit is targeting a new niche: cash rich and credit poor.
Tomo (which is literally taken from the word tomorrow) offers a departure from typical credit-building products. Rather than pull an applicant’s credit report or credit score, proprietary algorithm assesses the creditworthiness of an applicant based on banking data the consumer agrees to share.
The data then gives insights into an applicant’s ownership of financial assets, such as cash and stocks. (In this exchange, TomoCredit’s data partner is Mastercard-owned Finicity.)
“We wanted to build an offering that would help the millions of Americans who can’t access affordable credit, and we knew Mastercard had the right technology and infrastructure to help us turn this bold idea into a reality,” Kristy Kim, CEO of TomoCredit recently said in regard to Mastercard’s Developers portfolio.
The business model seems to be working as TomoCredit announced it collected a $10 million Series A funding round led by California-based investment firm Kapor Capital and KB Investment in September following its $7 million in seed funding in February.
FinLedger sat down with Kim recently to discuss the financial freedom that comes with TomoCredit, what is next on the horizon for credit worthy Americans and how their credit card is getting an international upgrade.
Let’s introduce the tech – how would you describe what TomoCredit’s product is doing?
We really tried to design a product to help customers build their credit score quickly that would then build a healthy financial future. And we kind of removed all the negative features around credit cards, like accidentally letting you overspend. So everyone has to pay us back every single week which keeps you accountable and responsible. So we have a weekly auto pay, meaning our card is designed to basically set you up for success and avoid all common mistakes of credit cards.
To help build that freedom in the approval process, we do not make a credit score inquiry, we do not get your credit score, we simply review your bank account balance. We check account flow alongside your debit and savings. So as long as you have a valid checking account, or a savings account that you use, you are qualified to build credit with us.
How would you categorize the customers gravitating towards this product?
The first group I will describe them as “fresh,” so students that do not have credit cards yet and are currently using a debit card. And we are encouraging them to pivot away from that debit credit, because debit does not give you a credit score.
So when I was in college, I used a debit card for everything, from my food to rent to really everything and I regret it because if I used a TomoCredit card at the time, by the time I graduate, I would have had an solid score fresh out of college. So, now I tell students that while you have some money and you have that debit card, why don’t you switch to TomoCredit and spend it as if you are spending with your debit.
So that’s the first group of customers, and the second group are working professionals. Surprisingly, there are so many working professionals in their 20s and 30s, making good income but haven’t had to build a credit score yet. Now, they are thinking about building a perfect score because they’re envisioning a mortgage or getting an auto loan.
How do you assign a credit limit?
We assign the credit limit that we think that you are capable to pay us back within one week, and it really varies dependent on the customer. So it can be anywhere between $100 to $10,000.
With it being something that you pay weekly, how much does this score fluctuate?
So, we do report diligently to the credit bureau that you paid back in full. So we say John Doe paid back in full four times in October, and the four times again in November. And that actually looks better than one time. So it’s four successful reports a month which will actually help build your score quicker.
How do you sell this idea to your investors? Because a lot of times these individuals would fall under “high risk” for other credit card companies.
Essentially, I tell investors that it is not a high risk group.
You are right, that there’s a stereotype that those people are high risk. I was one of them, and I was not high risk. My pitch to investors or anyone is yes, traditionally people without FICO scores are high risk. But now we are living in 2021, that traditional thinking doesn’t hold true anymore. Because there are just so many people who haven’t had the opportunity to build a credit score yet, like 80% of college campuses do not have FICO and do not have credit score interest. They’re not bad. They’re just simply fresh.
And when you look at working professionals, they are not bad. They are just in the beginning stage of building up their score. The fact that they’re 600, doesn’t mean that they are bad. 600 can mean that they just started. So for me, that’s why it’s really exciting to use the bank account balance it gives a chance to those customers who are still deemed as bad.
So I’m educating investors that, oh, there is some gap between the traditional underwriting system and the traditional credit bureau system, but the reality is that there are so many fresh, underserved people without credit score. And we are using new technology to identify good people out of those groups.
You all discussed a new offering at Money 20/20 geared towards international students. What does that look like?
Our latest product intention is that we are willing to extend credit to international students without a social security number. There are so many international students at different universities, whether it’s undergrad or grad school, that come to America and have to use debit cards for everything like I did.
We are thrilled to bring this new product feature to the millions of people who lack financial history in the U.S. For many immigrants and young students, accessing credit is essential, but there can be hurdles to obtaining a credit card even if an individual is well qualified. As a South Korean immigrant, I experienced the difficulties firsthand, and now, by tying our verification process to an .edu address, we are making it easier for students to enter the financial system.
So now we are letting them apply to Tomo even though they don’t have a social security number yet, it’s okay, as long as they can provide us their date of birth, name, address and school email. What I have observed so far with this offering is that with international students, the first thing they do when they come to the U.S. is open their bank account. Because our card works like a debit and credit hybrid, we are able to get them started. So if they choose to stay in the US after their schooling ends, they can stay and then get the perfect score that they want.